Strategic Directions for CIFJoint Meeting of the CTF and SCF Trust Fund CommitteesMafalda Duarte | Head of Climate Investment Funds Agenda Item #5

Monday, June 3, 2019 | Washington DC

Climate investments need to shift into high gear• The world is nowhere near on track to avoid warming beyond the 1.5°C target

• Limiting global warming to 1.5°C will require “rapid and far-reaching transitions in energy, land, urban and infrastructures, and industrial systems”

• A decisive shift in these systems is required in the critical two to three-year window ahead to avoid carbon and climate vulnerability lock-in for the decades to come

• Investments in climate action need to scale up significantly and as soon as possible to enable rapid structural and systemic changes in financial systems and the real economy

“This is our ‘use it or lose it’ moment: the decisions we take over the next 2-3 years will determine our growth and climate future”

(NCE, 2018)

2Source: IPCC (2018)

Facts highlight the urgency

Coal still remains the 2nd largest source of primary energy & the largest source of

electricity. Coal the single largest source of global temperature increase

Total primary energy supply by fuelSource: IEA (2018)

While emissions from all fossil fuels increased, the power sector accounted for nearly two-thirds of emissions growth

Facts highlight the urgency

A view of Beira (Mozambique) after cyclone Idai Cyclone IDAI and Kenneth post-impact situation in numbers (UNICEF, 2019)

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Facts highlight the urgency Direct CO2 emissions from industry increased in 2016, reaching 24% of

global emissions

Source: Davis et al. (2018)

Source: IEA (2018)

© Gasmet

Emissions from high-emitting industries such as cement manufacturing are hard to abate. Rapidly growing demand for these services

makes decarbonization urgent

Investments in climate action need to scale up significantly and as soon as possible

• Energy system: avg. of US$ 3.5 trillion per year on a global basis up to mid-century

• Urban system: the estimated deficit in investment for global infrastructure is growing by more than US$ 1 trillion a year

The investment gap in developing countries range between US$ 1.2 trillion and US$ 2.3 trillion per year

• Industry system: cumulative investment needs estimates for energy-intensive corporates are USD 7 to 8.7 trillion, 34% of which would need to be made before 2030

6Sources: IPCC (2018); NCE (2018); NCE (2017); IEA (2018).

CIF’s business model has proven to help accelerate investments for rapid and systemic climate actionCIF’s comparative advantage resides in the unique features of its business model

Source: ITAD et al., (2019).

Country-led programmatic participatory

approach

Multi-MDB coordination

Large-scale coherent

intervention packages

Scaled-up predictable &

flexible concessional

resources

Consideration of social inclusion

at the outset

5 core elements

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CIF is delivering sizeable impacts on the ground

CIF’s 300+ programs are leading to the following results:

• 51 million tons in GHG emission reductions a year, which is equivalent to taking all the cars in Pakistan or South Africa off the road (10 million cars)

• 26,500 MW in clean power, which is more than the total power capacity of Vietnam and almost the same as Netherlands (26.6 GW)

• 8.5 million people with improved access to energy, which is equivalent to the population of Switzerland or Sierra Leone

• Over 10,000 GWh/year energy saved, which is the equivalent of total annual electricity production of Uruguay

• Over 36 million ha of forests under improved management, the area of Congo or Germany

• 45 million people supported to cope with effects of climate change, more than the population of Argentina or Sudan

$ bnCONTRIBUTED BY 14 DONOR COUNTRIES

$ bnEXPECTED

CO-FINANCING

CLIMATE-SMART INVESTMENTS IN

COUNTRIES

8 53 72CIF CO-FINANCING

Sources: CIF’s Programs Semi-Annual Operational Reports published on May 2019 Note: CIF funding refers to Committee Approved resources; Expected co-financing data as of 31 December 2018

Recipient countries recognize the vital role CIF has played, and are urging for continued CIF support

ArmeniaBangladeshBeninBhutanBoliviaBrazilBurkina FasoCambodiaCameroonColombiaCote d'IvoireDRCEgyptGhanaGuyanaHonduras

IndiaJamaicaKenyaKiribatiKyrgyz RepublicLao PDRLiberiaMadagascarMalawiMaliMexicoMongoliaMozambiqueNigerNigeriaPapua New Guinea

PhilippinesSamoa Sierra LeoneSolomon IslandsSouth AfricaSt. LuciaTajikistanTongaTunisiaTurkeyUgandaUkraineVanuatuVietnamZambia

47 CIF recipient countries representing a combined population of over 3 billion people

• Ministers from the following 47 CIF recipient countries signed a Joint Ministerial Statement “strongly urging that the CIF be adequately resourced in light of the vital role it has played, and continues to play, in helping secure the safety and sustained prosperity of our peoples in a climate changing world”

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→G24 countries issued a Communique on 11 April 2019 echoing this call (it is the 4th such statement issued by the Group since 2016)

www.climateinvestmentfunds.org/news/joint-ministerial-statement

New frontiers for CIF

New frontiers for the CIF’s business model at play • CIF has track record and a functional structure in place that can

help drive system transitions in priority areas

• Six challenge areas that could benefit from the CIF business model were discussed at the January 2019 Joint TFC meeting

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Climate-smart urbanization

Sustainable transport Energy transition and

access

Cooling Adaptation and resilience Forestry and sustainable

landscapes

• Following the January 2019 Joint TFC meetings, MDBs developed a set of new program proposals that would:

o Harness the comparative advantages of the CIF’s model o Tackle current gaps in the climate finance architecture o Support priority sector/technology requiring to take-off o Accelerate frontier technologies/markets to nearing tipping

pointso Deliver a pipeline in the next two to three years o Mobilize private capital at a significant scale

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New frontiers for the CIF’s business model at play

Three new programs harness the unique strengths of CIF’s model• Large-Scale Integration of Renewable Energy to accelerate

deployment of flexible grid integration solutions – including battery storage – and energy access

• Climate-Smart Urbanization to overcome barriers and scale-up support to cities’ climate action

• Accelerating Low-Carbon Transition in Industry to help catalyze deep behavioral change and sustained impact in ‘tough-to-crack' high-emitting sectors

Note: A fourth program proposal seeking to scale up sustainable landscape-based management solutions is still under development 13

Large-Scale Integration of

Renewable Energy Program

Challenges to the integration of renewable generation into the grid and increase off-grid access• The share of renewables in the power mix needs to rise from 1/4 today to 2/3 in

2040 to meet climate goals. However, most power systems are not yet designed to deal with the variability and uncertainty of renewable energy generation

• Technologies, tools and services exist to address integration-related challenges, but they fail to attract enough investment

Institutional and regulatory barriers

Technology barriers and challenges

Financial and economic barriers

• Institutional inertia, weak capacity & siloed supply-driven perspective

• Weak policy and regulatory frameworks

• Lack of price on negative externalities

• High upfront costs & transaction costs

• Inadequate risk-adjusted returns

• Inadequate access to finance • Market distortions

• Lack of track-record• Inadequate conversion and connection infrastructure

• Transition shortages• Inadequate skills

Socio-cultural barriers

• Inadequate awareness and risk perception

• Behavioral or lifestyle issue

• Public opposition

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The Program’s solution is the deployment of an integrated mix of flexibility measures across key areas

Enabling Environment Enabling Technologies Enabling infrastructures Electrification & Demand Management

Sector policy enablers Set policy targets and roadmap for

deep decarbonization Create/improve

auctions/procurement mechanisms for renewable energy

Carbon pricing mechanisms

Market & system design & operations Advanced weather forecasting and

training on RE integration for grid operators

Increased time and space granularity in electricity markets

Promoting net billing schemes Designing carbon pricing / markets,

renewable certificate (iREC) Long term contracting of energy or

enabling hedging strategies

Energy storage technologies, such as batteries, pumped hydro, and hydrogen, which are able to back up the variability of renewables and provide various services to the grid

New technologies for real-time grid management that enhance electricity system flexibility and facilitate distributed generation, such as advanced metering systems, wireless network control and demand side management

Grid interconnection to integrate regional markets increasing their flexibility

Grid modernization (to improve control of voltage, frequency, fault current, etc.) and expansion (to improve RE power transfer capacity).

Improve the climate resilience of grids to more frequent increased temperatures and extreme weather events as a result of climate change, particularly for hydropower-dominated systems

Electric vehicle charging infrastructure, opening doors to new markets for renewable generation as well as new ways to store the generation surplus.

Business models that empower consumers, turning them into active participants

New and smart grids, both large and small scale, that complement each other and enable new ways to manage renewable energy generation.

Innovative schemes that enable renewable energy supply, in both off-grid and connected areas with focus on energy access

..enabled by the targeted use of flexible concessional resources through the CIF’s business model

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Programmatic participatory approach

To enable cross-government levels and cross-ministerial coordination in planning and policy-makingTo adopt an integrated energy system management approach

Multi-MDBs coordination & action

To encourage sustained investments in multiple energy infrastructure areas

To meet investment-specific needs and mobilize private capital at scale

Scaled-up, predictable, and flexible concessional resources

Climate-Smart Urbanization

Program

Challenges to low-carbon and climate-resilient cities • Meeting the climate and sustainable development goals depends on compact,

connected, and coordinated use of urban land. This requires an urgent overhaul of the current urban development paradigm and, thereby, the tackling of systemic barriers to cities’ climate action

Institutional and regulatory barriers

Technology barriers and challenges

Financial and economic barriers

• Institutional inertia including governance failures and short-termism

• Weak institutional capacity, knowledge and skills

• Legal barriers undermining PPPs

• Inadequate access to finance

• Misaligned incentives • Insufficient and/or

uncertain risk-adjusted returns

• Limited technical capacity and data availability to evaluate climate-related impacts

Socio-cultural barriers

• Inadequate public awareness of climate-related risks and impacts

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The Program’s solution is a multi-phased approach to diagnose, plan and invest

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..enabled by the targeted use of flexible concessional resources through the CIF’s business model

Programmatic participatory approach

To align multiple actors’ behavior and incentives around a common transformative vision

Multi-MDBs coordination & action

To foster strategic partnerships, mobilize institutional and political support and resources toward strategically-linked interventions

Scaled-up, predictable, and flexible concessional resources

To increase cities ownership, remove barriers and bring investment plans to action

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Accelerating Low-Carbon

Transition in Industry Program

Challenges to the low-carbon transition in industry • The biggest challenge in meeting the Paris Agreement lies in the major

harder-to-abate industries

• Many opportunities exist to reaching net-zero CO2 emissions from these industries by mid-century. However, industry faces several barriers that prevent it from shifting investments towards low-emission alternatives

Institutional and regulatory barriers

Technology barriers and challenges

Financial and economic barriers

• Institutional inertia & weak capacity

• Weak policy and regulatory frameworks

• Lack of/inadequate carbon price

• High upfront costs• Inadequate risk-adjusted

returns • Inadequate access to

finance

• Technology risk perception due to inadequate track-record

• Supply chains not conducive to tech transfer

• Inadequate technical skills 23

The Program’s solution is an integratedpackage of interventions at multiple levels

National Sectoral Corporate Industrial facility/technology

Support countries to update their Nationally Determined Contributions and long-term low-carbon strategies under the Paris Agreement

Support national actions required to drive investments into low-carbon corporate and industrial solutions e.g. carbon pricing and energy efficiency standards

Support the development of markets for Internationally Traded Mitigation Outcomes (ITMO) approaches

Enhance the regulatory environment for ITMO approaches such as GHG MRV and accounting under NDCs

Develop sectoral low-carbon “roadmaps” addressing policy, regulatory, social and investment barriers to transformational change

Enhance existing Nationally Appropriate Mitigation Actions to leveraging significant climate finance for catalytic whole-of-sector transformation approaches

Promote sector and stakeholder group inclusivity and country ownership over sectoral low-carbon transformation pathways

Piloting and accelerating the implementation of the TCFD’s recommendations

Managing GHGs emissions in the supply chain by promoting life-cycle emission analysis and scaling up green procurement approaches

Build corporate’s technical capacity to issue green bonds and catalyze demand from investors through tailored investment support e.g. credit enhancement

Introduce corporate level MRV systems

Energy efficiency technologies High energy efficient

production/process machineries Energy savings measures for

process equipment e.g. heat recovery

Energy management system upgrades

Electrical and hybrid handling equipment and charging points/electrification solutions

Low-carbon transport related technologies e.g. anti-ildingtechnologies, hybrid traction systems

Renewable energy technologies: Facility level solar systems,

biogas/biomass use, energy storage, advanced waste management

..enabled by the targeted use of flexible concessional resources through the CIF’s business model

Programmatic participatory approach

To enable the private-public cooperation required to develop and implement Paris-aligned national and sectoral roadmaps

Multi-MDBs coordination & action

To drive deep behavioral changes and generate demonstration effects that go beyond the direct impacts of each MDB's individual investments

Scaled-up, predictable, and flexible concessional resources

To address financial barriers that prevent industrial corporates from investing in low-carbon, climate-resilient technologies

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Driving innovation

CIF’s proven business model can push boundaries to drive innovation• The new programs offer an opportunity to accelerate MDBs’ efforts

in pursuing frontier approaches in difficult contexts and attracting private capital in new ways

• CIF can foster enhanced dialogues and learning with MDBs, and support them in the design and implementation of innovative financing strategies too Tackle barriers to private investments that have not yet been addressed

and/or that could be addressed more effectively and efficiently

o Mobilize capital toward areas that have not yet been able to attract MDB or commercial capital at all or at scale

o Accelerate recipient countries’ ability to deliver on their climate and sustainable development targets

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CIF partnered with The Lab to identify innovative blended finance instruments and business models

Catalyst Risk taker

Mobilizer Knowledge hub

CIF

• The analysis of 41 instruments of The Lab has helped identify opportunities for:

o Enhancing the CIF’s enabling role

o Expand MDBs’ toolbox to overcome persistent barriers

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Example of innovative instrument to explore under the Large-Scale Integration of Renewable Energy ProgramGreen Receivables Fund (Green FIDC)

• Goal: Provide lower-cost, long-term capital to clean energy project

• Innovative feature: combines green certification criteria, and a financial model tailored to the needs of renewable energy and energy efficiency projects to an existing instrument, the FIDC

• Key benefits: Mobilization potential: enables green projects to tap into

capital markets Attractiveness to private investors: The FIDC is well-known among domestic investors Offers greater liquidity, and tax efficiency compared to

alternatives Allows for segregation of operational and financial risks

Source: www.climatefinancelab.org

Project finance instrument that allows green projects to secure financing based on future cash flows through an asset-backed vehicle

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Scale up and increase the availability of long-term private finance for green projects

Examples of innovative instrument to explore under the Climate-Smart Urbanization ProgramBattery Subscription Facility

Source: www.climatefinancelab.org

• Goal: Enable the mass adoption of electric buses

• Innovative feature: Enables third-party led, non-subsidized deployment of electric buses at scale

• Key benefits: Demonstration potential i.e. prove a business model where there is currently no track record and appetite from commercial investors

Pay-per-service vehicle investing in batteries for electric buses, and providing them to bus operators on a subscription basis, charging for use on daily or per kilometer rates

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Accelerating deployment of electric buses

Scaling-upefficient and clean cooling systems

Example of innovative instrument to explore under the Accelerating Low-Carbon Transition in Industry Program Cooling as a Service (CaaS)

Systems ↓

Features→

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• Goal: Decrease energy consumption and potent HFC emissions from cooling systems through a pay-per-service model

• Innovative features: Pay-per-service model applied to cooling

to incentivize the design and use/re-use of efficient cooling technologies

Includes a ‘sale-and-leaseback’ to engage financial institutions

• Key benefits: Accelerate uptake of energy efficient state-of-the-art technologies resulting in accelerated emission reductions

Pay-per-service model with integrated financial tools to recapitalize technology providers who own, maintain and operate the equipment. CaaS enables customers to base their investment decision on life-cycle cost, and pay per-unit of service used.

Source: www.climatefinancelab.org: https://www.caas-initiative.org: Note (the visual is a work in progress)

Thank you!

climateinvestmentfunds.org

Mafalda Duarte

mduarte@worldbank.org